Claudia Sheinbaum Takes Office As Mexico’s President

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In this issue, you will find:

•Claudia Sheinbaum Takes Office As Mexico’s President

•The Americas Push Back in China’s Steel War

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•Claudia Sheinbaum Takes Office As Mexico’s President
718 words | 4 minutes reading time

Last Tuesday, Claudia Sheinbaum was sworn in as Mexico’s first female president. This, however, is far from her most remarkable attribute: Sheinbaum has proven to be a faithful heir to her predecessor, Andrés Manuel López Obrador (AMLO). Armed with a degree of legislative firepower AMLO never had, she seeks to reform Mexican society in ways the opposition deems near-apocalyptic. 

• Sheinbaum’s sui generis leftist nationalism, coupled with her embrace of AMLO’s controversial judicial reform, could weaken already tense relations with the United States, endangering the country’s long-term economic stability.

• Despite the country’s enormous appeals amid Washington’s bet on nearshoring, some of Sheinbaum’s other reforms, which include an automatic, year-on-year 12% hike to the minimum wage, could greatly reduce the country’s competitiveness. 
  
  

Between the Lines. AMLO’s judicial reform, which provides for all judges to be directly elected, was recently approved by Mexico’s Congress. In doing so, the government ignored not only a civil servants’ strike, but also international reservations on the matter.

• In the lower house, where the government controls 364 of the chamber’s 500 seats, the reform encountered no issues at all. In the Senate, Sheinbaum’s party, Morena, was one vote short of a two-thirds majority.  

• It solved this problem by enticing opposition senator Miguel Ángel Yunes, whose family that has been linked to several corruption scandals. Most suspect Yunes’ favorable vote came as a result of a backroom deal.
  
  

Panorama. Under AMLO, Mexico implemented nationalist policies that have strained relations with its USMCA trading partners. The government has centralized state control over key sectors like energy, benefiting Pemex, a state-owned energy giant, and the Federal Electricity Commission (CFE). 

• This approach risks upsetting the delicate balance in U.S.-Mexico relations, especially considering that 78.3% Mexican exports are U.S.-bound. Authorities in Washington are also keen on cracking down on Chinese investors’ use of Mexico as a middleman for tariff avoidance.

• Despite warnings from various financial institutions, Sheinbaum shows no signs of deviating from this path, which will undoubtedly lead to issues with Washington, especially if Donald Trump returns to the White House.

• Her other proposed reforms—hikes to pensions and the minimum wage, as well as amending the Constitution to include the terms “gender perspective” and “substantive equality”—also risk driving away foreign investment.
  
  

International Opposition. U.S. Ambassador Ken Salazar has not hesitated to point out the dangers posed by Mexico’s judicial reform. According to him, AMLO and Sheinbaum’s plans threaten Mexican democracy, as well as U.S.-Mexico trade links. Salazar emphasized that any judicial reform should strengthen, not weaken, the independence of judges. 

• For Salazar, directly elected judges will not only lead to further politicization of Mexico’s courts, but will also likely facilitate cartels’ operations.

• The economic effects are already being felt. The Mexican peso, which performed remarkably well in 2023, has fallen steadily since Sheinbaum was elected. 

• Institutions such as Morgan Stanley have lowered their investment recommendations for Mexico, and Citibanamex warned that the reform could lead to the end of liberal democracy in the country.
  
  

Why Does It Matter? Leaving institutional risks aside, Sheinbaum’s policies could have pernicious long-term consequences for the Mexican economy. Mexico’s growing role as a commercial intermediary between the United States and China could be affected if Sheinbaum implements reforms that erode stability and confidence in the country.

• The increase in trade between China and Mexico, especially in Chinese intermediate goods that are finished in Mexico and then exported to the United States, are part of a tariff avoidance strategy, but they also serve as a sign of Mexico’s importance to global supply chains. 

• However, an internal political crisis could make investors reconsider their presence in the country, harming key sectors such as the automotive and manufacturing industries.

• This is especially true if Mexico embarks on a combative course, thereby alienating the United States and eroding any goodwill in Washington. 
  
  

Balance. Claudia Sheinbaum must decide on a course; she can either maintain AMLO’s policies or seek a moderate path that ensures Mexico’s economic growth and stability. Scarcely a week into her presidency, Sheinbaum, a somewhat Americanized metropolitan leftist, has evidently chosen the former. 

• Indeed, she may prove more radical than AMLO, who was occasionally pliable via the backroom deals popularized by Mexico’s formerly hegemonic party, the PRI.

• Although her current proposals generate uncertainty, the Mexican economy’s foundations remain strong. If Sheinbaum insists on her radical reforms, Mexico’s economy is bound to suffer, but this need not be permanent if key sectors manage to weather the political storm.
  
  

•The Americas Push Back in China’s Steel War
711 words | 4 minutes reading time

Bolstered by state subsidies, China exports a range of products, including steel, at prices below their domestic market value or production costs. As the world’s largest steel producer, Beijing has been accused of dumping its steel in global markets, with Latin America and the United States being notably affected. This has triggered a wave of protective measures from governments aimed at shielding local industries from the market distortions caused by Chinese practices that are deemed unfair.

It’s News. Mirroring actions already taken by many countries in the region, this week, Guatemala's Ministry of Economy announced the launch of an investigation to evaluate whether imports of Chinese galvanized steel are harming local manufacturers. 

• Preliminary findings suggest that the influx of these products has driven down domestic prices by more than 15%, raising concerns about the future viability of the country’s steel industry.

• Guatemalan imports of iron and steel from China have experienced considerable growth in recent years. By 2023, these imports amounted to approximately $547 million, accounting for 46% of the country’s total iron and steel imports. 

• Though this may soon change, Guatemala has yet to impose specific tariffs or restrictions on Chinese steel exports. Washington should be mindful of this situation, as Guatemala, a member of CAFTA-DR, enjoys privileged access to U.S. markets. This could potentially be exploited by China to circumvent U.S. tariffs, a tactic previously employed through Mexico. 
  
  

Panorama. China’s steel production accounts for more than 50% of the world’s total, reaching over 1 billion metric tons annually. However, its domestic demand cannot absorb this enormous output, leading to a surplus that is exported at prices that often do not reflect actual production costs. 

• Latin America, with its growing infrastructure and industrial sectors, has become a key destination for Chinese steel. Reports suggest that Chinese steel exports to the region have increased by more than 400% over the past decade. 

• The United States, too, has been a significant target for Chinese steel exports. The U.S. steel industry, already under pressure from decades of declining production, has seen Chinese steel imports destabilize prices.

• The price difference between Chinese and U.S.-produced steel has, at times, been as much as 20-30%, making it difficult for U.S. manufacturers to compete on anything but quality.
  
  

Why It Matters. In many Latin American countries, steel producers have been forced to reduce production, lay off workers, and even shutter plants due to their inability to compete with the artificially low prices of Chinese steel. The impact has, of course, been particularly severe in the United States, particularly in the Rust Belt, which historically housed much of the country’s steel production.

• In response to these challenges, the United States, along with countries such as Brazil, Argentina, and Colombia, have implemented a series of measures, including tariffs and trade restrictions, aimed at curbing the flow of Chinese steel.

• In 2024, the United States extended these tariffs to steel imports from Mexico if the steel was not melted and poured in North America. Just this week, the Department of Homeland Security announced a ban on steel imports from a Chinese manufacturer under the Uyghur Forced Labor Prevention Act.

• However, these measures have also contributed to higher prices for consumers and businesses, which rely on steel for construction and manufacturing. Trade experts have warned that while tariffs may help producers in the short term, they could lead to retaliation from China and potentially disrupt global trade.
  
  

Balance. In the Americas, the political response to Chinese steel dumping has been mixed. While Washington is fully committed to its trade war with Beijing, most Latin American countries have been more cautious and restrained in imposing trade barriers. They fear an overly aggressive attitude could jeopardize their exports to China.

• Many industries in Latin America are deeply reliant on Chinese investment. China is an increasingly prominent buyer of Latin American exports, particularly key commodities such as soybeans, copper, and oil. As such, governments in the region must carefully balance the need to protect their domestic industries with the desire to preserve strong economic ties with China.

• As the global steel market continues to evolve, tensions between free trade and protectionism are likely to intensify. The future of the steel industry in the region will hinge on the ability of its leaders to skillfully navigate this complex economic landscape while safeguarding the interests of their workers and domestic firms.